June 2019

Article 5(2)(k)(i) of India–UK DTAA – multiple counting of employee in a single day is impermissible for computing service PE threshold; period of stay during which employee is on vacation in India is also to be excluded for determination of service PE

GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants

8

TS-210-ITAT-2019(Mum)

Linklaters vs. DDIT

ITA No. 3250/Mum/2006

A.Y.: 2002-03

Dated: 16th April, 2014

 

Article 5(2)(k)(i) of India–UK DTAA – multiple counting of employee in a single day is impermissible for computing service PE threshold; period of stay during which employee is on vacation in India is also to be excluded for determination of service PE

FACTS

The assessee, a UK resident partnership firm, was engaged in the business of practising law. During the year under consideration, the assessee was appointed to provide legal consultancy services to Indian clients, in respect of which it received consultancy fees. The assessee contended that the fee received was in the nature of business income and, in the absence of PE, such income was not taxable in India.

 

The AO, however, was of the view that the employees / other personnel of the assessee rendered services in India for a period of more than 90 days and, hence, the assessee had a service PE in India under Article 5(2)(k)(i) of the India–UK DTAA. He, therefore, held that the income earned from rendering legal consultancy services was taxable in India.

 

However, the assessee argued that one of its employees present in India was on a vacation here and during such stay the employee did not render any services in India. Consequently, such period has to be excluded for the purpose of computing the threshold of 90 days for determination of service PE. Further, the assessee argued that the period of stay of employees in India has to be taken cumulatively and not individually. On the above basis, the total presence of employees in India was only for 87 days. Hence, service PE in India was not triggered.

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